In the construction industry, acknowledging payment for goods and services is common. Such acknowledgments come in many forms. They may be referred to as a waiver of lien, release of lien, or they may refer to a release or waiver of claims. They may be conditional or unconditional. They may be partial or final. Many contractors sign them in exchange for payment without really taking the time to read or understand the language contained in such documents. This can be a costly mistake. Be wary of what you are agreeing to in signing any type of waiver or release.
Pay attention to what it is that you are waiving or releasing. Some waivers or releases state that you are only waiving or releasing your right to claim a lien or file a bond to the extent that you are being paid a certain amount in connection with such release or waiver. This is what many contractors assume they are agreeing to in executing a release or waiver in connection with payment. However, some language in waivers or releases go further. They may specify that you are waiving or releasing any and all claims for payment for work performed or goods provided through a certain date. Some final releases go even farther by specifying that you are waiving or releasing any and all claims of every kind against the owner, the project, the property and other contractors. Note the differences between what is being released and/or waived.
These releases can be become a problem when the person making the payment and the person signing the waiver have different ideas about what is being paid and one of the parties isn’t paying attention to the specific language in the waiver or release. As an example, consider Addicks Services, Inc. v. GGP-Bridgeland, L.P., 596 F.3d 286 (5th Cir. 2010). In such case, the contractor found after starting the project, that numerous issues arose including requests for additional work, delays due to inclement weather, and site accessibility problems. In accordance with the contract for the project, the contractor made written requests for information regarding the work, extensions of time, and change orders. However, while the requests were pending, the contractor submitted applications for payment and with such payments executed waivers for each payment received which stated:
|This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment for all work performed, and all costs or expenses incurred (including by not limited to costs for supervision, field office overhead, home office overhead, interest on capital, profit, and general conditions costs) relative to the work or improvements at the Project as of the date of this waiver, except payment of retainage. [Contractor] specifically waives, quitclaims and releases any claim for damages due to delay, hindrance,|
Despite the blank space for exclusions, the contractor merely signed the waivers in exchange for payment without identifying any of the pending change orders. After the project ended the contractor sued the owner for payment of additional unpaid costs. The court found the unambiguous language of the waiver barred not only the contractor’s right to lien the project, but also the contractor’s right to sue for breach of contract!!
Here is Part 2: Lien Releases: Look Before You Leap – Part 2